Lender Beware: Mortgage Consolidation and Title Insurance Policy Risks

Today we want to bring your attention to an interesting case decided by the Appellate Court, First Department which affirmed a Lower Court’s Order dismissing a Plaintiff/Lender’s Complaint against a Defendant/Title Company.  The Plaintiff’s Complaint, in part, sought Title Company’s defense and indemnification in a pending foreclosure action based on a Loan Policy issued in connection with an initial Mortgage; which Mortgage was thereafter assigned to a new Lender and consolidated with a new money mortgage to form a single, new lien on the property. 
The relevant facts of, as well as a link to, the case are set forth below.

Defendant, AmTrust Title Insurance Company, (“AmTrust”) issued a title insurance policy on a mortgage (the “AmTrust Loan Policy”) executed in favor of a nonparty, Rosa Funding LLC, on October 23, 2019 (the "Rosa mortgage").  The AmTrust Loan Policy defined an "Insured" to include the owner of the mortgage and each successor in ownership of the indebtedness.   According to its terms, the AmTrust Loan Policy remained in effect for as long as the Insured “retains an estate or interest in the Land" (citations omitted). The Rosa mortgage was assigned twice, and then consolidated into a single lien in favor of nonparty FM Home Loans with another mortgage issued to said entity.  A Nonparty, The Security Title Guarantee Corporation of Baltimore ("Security Title") issued a new loan policy of title insurance on the consolidated mortgage on February 27, 2020. The consolidated mortgage was then eventually assigned to Plaintiff, Wilmington Savings Fund Society, FSB, d/b/a Christiana Trust, not in individual capacity, but solely in its capacity as Certificate Trustee for NRP Mortgage Trust 1 (“Wilmington”).
 
In or about July, 2021, Plaintiff, Wilmington,  moved to foreclose the consolidated mortgage and subsequently made a claim to Defendant under the AmTrust Loan Policy issued for the Rosa mortgage.  AmTrust denied the claim, on the grounds that when the Rosa mortgage was assigned to FM Home Loans, it was satisfied under the terms of the AmTrust Loan Policy. Plaintiff then commenced this action seeking defense and indemnity under the AmTrust Loan Policy , and a declaration that the AmTrust Loan Policy remains in effect based on an argument that Wilmington should be considered a successor in ownership under the AmTrust Loan Policy because the first mortgage does not cease to exist once consolidated. The Lower Court rejected Plaintiff’s argument, and the appeal ensued.
 
In affirming the Lower Court’s Order dismissing the Complaint against AmTrust, the Appellate Court reasoned that “when the mortgages were consolidated into a single lien superseding all prior liens, the first mortgage no longer secured an "estate or interest" in the property as required to continue coverage under the title insurance policy issued by defendant” (citation omitted) and further that the Wilmington was not a successor in ownership under the AmTrust Loan Policy.

You can view the case by clicking the link: 
 https://www.nycourts.gov/reporter/3dseries/2025/2025_01185.htm

This decision is an important reminder to Lenders that coverage under Loan Policies will terminate once the mortgage is assigned and consolidated to form a single, new lien.